Lax Environmental Regulations Research Articles

Impact of environmental regulation on M&As in the manufacturing sector

We test the influence of environmental regulation (ER) on the location decision of cross-border Mergers and Acquisitions (M&As) for a large sample of countries, sectors, and years using a structural gravity model. Unlike other studies, our results confirm the pollution haven hypothesis according to which more stringent ER makes countries less attractive to foreign investors planning to invest through M&As, compared with domestic investors. Policies that set quantitative limits on emissions have similar discouraging effects on cross-border investment to taxes on emissions. We find no evidence that the impact could be stronger in dirty sectors than in clean sectors. The impact of ER differs depending on country type according to their level of development, reflecting the fact that investments in developed countries and BRICS respond to different motivations. In emerging countries, lax ER could attract significantly more inward M&As. In developed countries, ER has a less discouraging effect.

The Role of Carbon Emissions on Inward Foreign Direct Investment: A Nonlinear Dynamic Panel Data Analysis

An increase in carbon emissions (CO2) may increase inward foreign direct investment (FDI) in developing countries since they are seen as pollution havens because of lax environmental regulations (pollution haven hypothesis). Developed countries may also attract FDI since stringent environment regulations in these countries working to reduce emissions might be more attractive to foreign investors concerned with their repute from a green perspective. A rise in CO2 emissions in developed countries therefore deters inward FDI (green haven hypothesis). The existing empirical studies investigate the empirical validity of these hypotheses by focusing on the impacts of environmental policies and regulations on FDI and have yet to produce conclusive results. We examined the effect of CO2 emissions on FDI and provide a more accurate and novel way of investigating the empirical validity of the pollution haven hypothesis against the green haven hypothesis. Specifically, we examined the non-linear effects of CO2 emissions on inward FDI in a sample of 124 countries over the period 1997–2022. The results indicate that CO2 emissions have an inverted-U-shaped relationship with FDI, confirming our hypotheses that higher CO2 emissions in countries with lax environmental standards attract FDI while environmental degradation in countries with stringent environmental standards deter FDI.

Environmental considerations along the life cycle of pharmaceuticals: Interview study on views regarding environmental challenges, concerns, strategies, and prospects within the pharmaceutical industry

Environmental impacts of medicines arise throughout their entire life cycle. The pharmaceutical industry has a key role in reducing these impacts in early production phases, but currently has limited possibilities to reduce the environmental exposure arising from drug consumption and end-of-life. The aim of this interview study was to explore the current environmental actions within the industry, as well as the views and attitudes toward the strategies to address the environmental challenges and concerns. Semi-structured interviews were conducted among representatives (n = 15) from twelve pharmaceutical companies operating in Finland in February-May 2021. The data were analyzed using qualitative content analysis.The representatives of pharmaceutical industry were overall well aware of the multifaceted environmental challenges related to the life cycle of pharmaceuticals and of their role in improving sustainability in production. Improving waste management and reducing impacts from companies’ own operations were the most commonly mentioned actions already taking place within the companies (15/15). “Environmental impacts arising from drug consumption” (6/15) and “centralized drug manufacturing in countries with lax environmental regulation” (4/15) were most frequently brought up challenges difficult to resolve. “Development of environmentally more sustainable drug production in the company” was the most frequently raised key development need (5/15). To address this, establishment of tangible economic drivers, regulatory incentives, or reputational rewards were called for. “Incorporation of environmental aspects into decision-making in different situations” was suggested by 11/15 interviewees as a means to promote sustainable development, e.g. in selection of medicines by physicians and consumers. However, the attitudes towards the types of criteria and their evaluation differed between interviewees. Attitudes towards the “incorporation of environmental fate assessment into early phases of drug design and development” were mostly positive (10/11), suggesting that there is a keen interest in the industry to foster the introduction of new tools enabling the development of pharmaceuticals intrinsically less harmful for the environment.

The impact of environmental regulation and industrial agglomeration on air pollution: on the spatial spillover perspective

AbstractThis paper uses the panel data of 275 prefecture-level cities in China in 2003–2019 and spatial Durbin model to verify the impact of environmental regulation and industrial agglomeration on air pollution. This paper finds that the enforcement intensity of environmental regulations (ER) is not consistent among cities. The effects of strict ER on air pollution in local city are the inverted-U-shape curve. The effects of more stringent ER in adjacent cities j on air pollution in city i are the U-shape curve. The more stringent ER in local city may lead to the decrease in agglomeration of manufacturing sectors (AM), thereby reducing air pollution. The polluting firms may shift production from neighboring cities j with stringent ER to city i with lax ER, thereby leading to the increase in AM, which aggravate air pollution in city i. The more stringent ER in local city i may lead to the increase in agglomeration of productive service industry (AS), thereby reducing air pollution. To avoid the transfer of polluting industrial sectors, the paper suggests that the more stringent implementation of ER should become nationwide actions.

The dynamic relationship between resources, finances, and sustainable development: An in-depth analysis

The expansion of the economy and the use of natural resources have been identified as the main causes of environmental degradation. As a result, there is a need for sustainable and environmentally-friendly growth. However, the concept of "pollution havens" is becoming increasingly relevant, with businesses relocating to developing countries in search of more lax environmental regulations. This could lead to higher-than-desirable rates of pollution and environmental damage. To address this issue, this study assesses the role of natural resources (NTR), Foreign Direct Investment (FDI), Financial Development (FDT), and Green Finance (GFN) using QARDL analysis. The study found that NTR, FDI, and FDT increased CO2 emissions, while GFN reduced them in the short and long run. The findings provide valuable insights for policymakers, who can use the information to develop policies that promote economic growth while reducing environmental pollution. Additionally, the study highlights the need to prevent businesses from exploiting lax environmental regulations in developing countries. Overall, the findings of this study underscore the importance of balancing economic development and environmental sustainability and call for the prioritization of green initiatives in policy development.

Operational behaviours of multinational corporations, renewable energy transition, and environmental sustainability in Africa: Does the level of natural resource rents matter?

The pollution haven hypothesis postulates a transfer of unsustainable production practices by multinational corporations (MNCs) to their operational bases in developing economies with lax environmental regulations. However, little is known about the role of natural resource rents in this relationship. To this end, the study empirically investigates the interaction effects of the operational behaviours of multinational corporations (MNCs) through foreign direct investment (FDI) and natural resource rents on environmental sustainability in 34 African countries over the period 1990 to 2017. Identifying two main pathways through which this can occur, we specify two models with CO2 emissions and renewable energy as separate response variables. Employing both the System Generalized Method of Moments (SYS-GMM) and Method of Moments Quantile regression (MM-QR) estimation techniques, the empirical results suggest that natural resource rents play a vital moderating role in determining how the operational behaviours of MNCs affect environmental sustainability. The interaction term of foreign investment and natural resource rents correlates negatively and positively with environmental pollution and renewable energy transition respectively. This suggests that at a certain level of natural resource rents, the strength of the operational behaviours of MNCs to increase environmental degradation is reduced. Furthermore, in countries with lower levels of natural resource rents, an increase in foreign investment deteriorates the environment, while in countries with lower levels of foreign investment, an increase in resource rents degrades the environment. The dynamics follow the reverse direction when renewable energy is the response variable. These findings, therefore, have policy implications for achieving Africa's goal of carbon neutrality.

Incorporating conceptual site models into national-scale environmental risk assessments for legacy waste in the coastal zone

Solid wastes deposited in the coastal zone that date from an era of lax environmental regulations continue to pose significant challenges for regulators and coastal managers worldwide. The increasing risk of contaminant release from these legacy disposal sites, due to a range of factors including rising sea levels, associated saline intrusion, and greater hydrological extremes, have been highlighted by many researchers. Given this widespread challenge, and the often-limited remedial funds available, there is a pressing need for the development of new advanced site prioritization protocols to limit potential pollution risks to sensitive ecological or human receptors. This paper presents a multi-criteria decision analysis that integrates the principles of Conceptual Site Models (Source-Pathway-Receptor) at a national scale in England and Wales to identify legacy waste sites where occurrence of pollutant linkages are most likely. A suite of spatial data has been integrated in order to score potential risks associated with waste type (Source), likelihood of pollutant release relating to current and future flood and erosion climate projections, alongside current management infrastructure (Pathway), and proximity to sensitive ecological features or proxies of human use in coastal areas (Receptors). Of the 30,281 legacy waste deposits identified in England and Wales, 3,219 were located within the coastal zone, with coastal areas containing a density of legacy wastes (by area) 10.5 times higher than inland areas. Of these, 669 were identified as priority sites in locations without existing coastal defences or flood management infrastructure, with 2550 sites identified in protected areas where contaminant transfer risks could still be apparent. The majority (63%) of the priority sites have either undefined source terms, or are classified as mixed wastes. Mining and industrial wastes were also notable waste categories, and displayed strong regional distributions in the former mining areas of north-east and south-west of England, south Wales, and post-industrial estuaries. The large-scale screening process presented here could be used by environmental managers as a foundation to direct more high-resolution site assessment and remedial work at priority sites, and can be used as a tool by governments for directing funding to problematic sites. List of Acronyms.

Development zones and green innovation: Evidence from Chinese listed companies

This paper applies data of listed Chinese companies from 2000 to 2017 and a time-varying DID model to examine the effect of the National Development Zones (NDZs) and Provincial Development Zones (PDZs) on green innovation. First, it is found that NDZs can significantly boost companies' green-innovation, while PDZs can slightly inhibit the quality of green innovation. These results still apply even after a series of robustness checks. Second, supply chain finance, environmental regulation, and green finance are three mechanisms through which NDZs exert a beneficial influence on green innovation. In contrast, the negative effects of PDZs stem primarily from lax environmental regulations. Finally, heterogeneity analysis shows that the establishment of NDZs has a significant effect on promoting green innovation in non-resource-based urban enterprises, non-state-owned enterprises, and small-scale enterprises.

A meta-analysis of cross-country context effects on the link between green product strategy and financial performance

PurposeDecades of research offer mixed results regarding the relationship between green product strategies and corporate financial performance. On the one hand, many scholars put forward green product strategies as a source of competitive advantage and in turn enhance financial performance. On the other hand, some studies suggest the opposite – that green product strategies may encounter managerial difficulties or are too costly, consequently leading to meager, if any, financial gain. This study explores cross-country contextual differences as a contingency to resolve this inconsistency. Thus, the research question is, “Do stakeholders of a country affect the link between green product strategies and financial performance?”Design/methodology/approachUsing a meta-analytic approach, the authors examine three country-level contingencies related to stakeholders: the impact of regulatory (stringency of environmental regulators), economic (consumer economic wealth) and political conditions (democratic vs. authoritarian governments) of a country in which the effects of a green product strategy on financial performance may vary.FindingsConsistent with our predictions, the meta-analysis of 26 studies published over a 20-year period reveals that green products positively relate to financial performance in countries with lax environmental regulation, low consumer economic status and authoritarian regimes.Originality/valueThe authors applied both (natural) resource-based and resource dependence theories by focusing on the interactions between firms' internal resources/capabilities and the external resources that firms can access. By doing so, the study adds to our understanding of stakeholders as resource providers to enhance financial benefits of green product strategies and provide insight into key boundary conditions of the link.

Discussion of Dhaliwal, Goodman, Hoffman, and Schwab (2019): Revisiting Tax-Related Reputational Costs

Discussion of Dhaliwal, Goodman, Hoffman, and Schwab (2019): Revisiting Tax-Related Reputational Costs

The role of Income, Trade, and Environmental Regulations in Ensuring Environmental Sustainability in MINT Countries: Evidence from Ecological Footprint.

Income alone cannot ensure environmental sustainability. As such, different economies have relied on environmental regulations to preserve the quality of their environment. The efficiency of such regulations on environmental degradation is still unclear in developing countries culpable for lax environmental regulations. As such, this study explores the effect of environmental regulations on the ecological footprint (EFP) in MINT (Mexico, Indonesia, Nigeria, Turkey) countries from 1980-2016. The results suggest that energy consumption, trade and GDP increase the EFP while environmental regulations reduce it thereby mitigating environmental degradation, though insignificantly. This indicates that environmental regulations are not totally successful in mitigating ecological distortions in the sample countries. The study applies the FMOLS estimator to obtain the country-wise results. There is evidence that energy consumption increases the EFP in all MINT countries. The same influence is exacted by trade on the EFP, except in Turkey. The abating role environmental regulations on environmental degradation were confirmed in all the countries. It was significant in Nigeria and Turkey, but no in Mexico and Indonesia. Further findings revealed a bidirectional causality between GDP and EFP. Policy directions are discussed within the framework of Sustainable Development Goals (SDGs).

Is the Relocation of Polluting Industries Prompted by FDI Flow and Stock, Globalisation, Corruption and Regulation?

Can globalisation and foreign direct investment shape sustainable development? Foreign direct investment is one of the main drivers for the transfer of polluting industries. With this in mind, the main objective of this research is to identify the role played by foreign direct investment (flow and stock), globalisation (de jure and de facto), corruption and regulatory quality in environmental degradation and sustainable development. To accomplish this objective, and to link the relationships under analysis to the level of development, a comparison between a group of developing countries and a group of developed ones was performed. The results confirm the suitability of the division of the countries by revealing various effects. This analysis was conducted from 1996 to 2017 and by recurring to the Autoregressive Distributed Lag model. This study proves that foreign investors play a vital role in reaching sustainable development. Measures must be implemented to eliminate the distortions that cause a company based in a country with strict environmental regulations to relocate its production to one with lax environmental regulations. However, these measures need to be combined with complementary measures that encourage developing economies to agree to a possible slowdown in their economic growth if sufficiently compensated for this reduced growth.

A Meta-Analysis of Country Context Effects on the Link Between Green Products and Firm Performance

Green products refer to products that use less polluting materials, emit less pollution during usage, and are more recyclable upon disposal. Although green product strategy has gained attention from both scholars and business practitioners as a source of competitive advantage and environmental sustainability in recent years, empirical evidence for the relationship between green products and financial performance remains inconsistent. Drawing on the Natural Resource Based View (NRBV) and Resource Based View (RBV), we explore crucial contextual contingencies that can help resolve this inconsistency. In particular, we examine three country-level contingencies: i.e., the impact of regulatory, economic and political conditions of a country in which rarity and imitability of green product resources and capabilities may vary. Our meta-analysis of 18 studies published over 40-year period reveals the importance of considering country-level differences for the green products-financial performance link. Our results indicate that green products positively relate to financial performance only in countries with lax environmental regulation (vs. stringent environmental regulation), developing economy (vs. developed economy), and authoritarian regime (vs. democracy).

Fending off waste from the west: The impact of China's Operation Green Fence on the international waste trade

AbstractChina launched the first Operation Green Fence (OGF) on 1 February 2013 to fend off inflows of illegal waste. The main objective of OGF was to enforce waste trade policies already adopted by China and thereby restrict illegal waste imports. We use a gravity model of international trade with annual bilateral waste trade data at the 6‐digit HS code level to assess the impact of OGF on the international waste trade. First, we study the direct impact of OGF and find that the intervention resulted in a 26% drop in low‐quality waste exports to China from developed countries. Second, we assess the impact of OGF on exports from developed countries to developing countries, excluding China. We do not find a statistically significant effect of OGF on low‐quality waste exports from developed countries to developing countries (excluding China). We also test the waste haven hypothesis and do not find evidence that waste exports were disproportionately diverted to countries with lax environmental regulation.

Pollution haven or porter? The impact of environmental regulation on location choices of pollution-intensive firms in China

Using firm establishment-level data combined with provincial socio-economic characteristic panel data in China for the period of 2011–2015, this study seeks to empirically examine the impact of environmental regulation on location choices of polluting firms. The results of the conditional logit model provide compelling evidence that environmental regulations do affect the location choice of firms in polluting industries. Instead of supporting the pollution haven effect, our results consistently confirm the Porter effect at the country level. This result is robust when taking endogeneity problem into account, adopting various model specifications and estimation strategies, using alternative measurements of environmental regulation and location choices, and subsampling excluding international political events. However, the results also show divergent effect of environmental regulation on location choices for heterogeneous firms. Specifically, polluting firms in eastern region prefer to invest in provinces with stringent environmental policies but those in other regions, especially in northeastern region, choose to locate in provinces with lax environmental regulation. While water-dependent polluting firms with a low level of footlooseness are more likely to enter locations with loose environmental regulation, air pollution-intensive firms tend to locate in provinces with tight environmental legislation. These results have policy implications for transitional China as well as other developing countries with similar experience.

Trade Liberalization and its Environmental Impact in India: An Empirical Analysis

The debate on the impact of trade on environment is pertinent considering the increasing volume of trade among world nations and the changes in environmental quality. In India, this increase was higher because of the gradual lifting of the quantitative restrictions and reduction in tariffs after trade liberalization in 1991. The pollution haven effect occurs when trade liberalization, coupled with lax environmental regulations results in increasing economic activities in pollution intensive industries. Using industry level data for the period 1998-2008, for fifty eight manufacturing industries in India, this paper looks at output and export trends and attempts to examine, whether trade liberalization is associated with a shift in production and exportation towards pollution intensive goods industries (pollution haven effect). Manufacturing output has been significantly higher from the water pollution intensive sectors compared to the air and toxic pollution intensive sectors. This evidence provides some support for concerns that there is significant contribution in production of manufacturing industries from dirty industries. The results of the study suggest that while trade liberalization measures have been pursued to promote economic growth in India but they have led to some potentially adverse environmental consequences.

Institutional Determinants of Environmental Corporate Social Responsibility: Are Multinational Entities Taking Advantage of Weak Environmental Enforcement in Lower‐Income Nations?

AbstractMultinational enterprises (MNEs) are often accused of taking advantage of lax environmental regulations in developing countries. However, no quantitative analysis of the impact of doing business in nations of different income levels on environmental corporate social responsibility (ECSR) has been done prior to this study. Incorporating institutional factors in our approach, we argue that endoisomorphic and exoisomorphic pressures relating to ECSR impact MNEs differently according to the MNEs' level of activity in low‐, lower‐middle‐, upper‐middle‐, and high‐income nations. We predict and, using data from 113 companies, find that selling in poorer nations is positively associated with increased levels of ECSR. Our research suggests that MNEs may not be participating in a “race to the bottom” but may instead be responding to global institutional pressure by exceeding local norms for environmental stewardship. Alternative interpretations of our findings are discussed.

How Corporate Social Responsibility Helps MNEs to Improve their Reputation. The Moderating Effects of Geographical Diversification and Operating in Developing Regions

AbstractMultinational enterprises (MNEs) can enhance their reputations through advanced social initiatives and management practices. These firms often locate facilities in developing countries to benefit from lax environmental and social regulations, and to reduce their operating costs. MNEs can, however, also contribute positively to the development of those countries through corporate social responsibility (CSR) activities. This paper argues that MNEs operating in developing regions can enhance their level of corporate reputation through the implementation of CSR initiatives that meet specific stakeholders' expectations of the firm's activities in these areas. In addition, we argue that MNEs with units based in different regions strengthen the impact of corporate social performance on corporate reputation. Based on a sample of 113 US MNEs from the chemical, energy, and industrial machinery industries over the period 2005–2010, our findings show that CSR has a positive effect on corporate reputation. In addition, MNEs' operations in developing regions intensify the positive relationship between corporate social performance and reputation, although geographical diversification does not necessarily enhance MNEs' reputation through corporate social performance. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment

Preserving ecologically sensitive hotspots under endogenous regulation and valuation constraints

AbstractWe model tradeoffs arising between protecting biodiversity hotspots and promoting economic growth in developing economies. Environmental valuation and economic growth are assumed to be inherently linked, whereas, the ability to enforce stricter environmental regulations is constrained by the presence of regulator‐commercial nexus. A dynamic optimization framework is adopted to derive optimal time path of forest acreage preservation efforts from the perspective of a regulator, whose utility function may not be fully aligned with that of the society. Results indicate that due to the presence of a regulator‐commercial nexus, the regulator's optimal plan leads to a discounting of biodiversity preservation goals in favor of short‐term economic growth. Further, when the degradation of the environment provides negative feedback to local economic growth, the regulator's optimal plan deviates significantly from the socially optimal plan, resulting in losses to both economic growth and the biodiversity.Recommendations for Resource Managers Regulator‐commercial nexus can undermine the goal of preserving biodiversity hotspots. A regulator having significant nexus with the commercial exploiters of biodiversity would underinvest toward biodiversity preservation efforts. The resulting lax environmental regulations, even though they may appear to be providing beneficial results to the economy in the short term, could harm the environment as well as the economy in the long term. Short‐term economic gains that materialize through the overexploitation of the biodiversity also help disguise and sustain the regulator‐commercial nexus. When environmental degradation could provide negative feedback to economic growth, the differences in biodiversity preservation efforts under a socially optimal plan and that under a regulator‐commercial nexus stand in sharp contrast. A socially optimal plan leads to lower rate of economic growth in the short term; however, the long‐term outcomes for the environment as well as the economy are significantly higher as compared to what is possible under a regulator‐commercial nexus.

Laudato Si' and the Papal View of Ecological Debt: An Empirical Exploration

In 2015, Pope Francis released his second papal encyclical, Laudato Si’: On Care for Our Common Home (Francis, 2015), the central idea of which is the Holy Father’s concern for the future of our planet, our common home, and to seek sustainable and integral development. The purpose of this article is to critically and empirically examine the specific notion of ecological debt as described in the encyclical (Francis, 2015: 51 and 52), beginning with a historical background on the origins and use of the term. We then touch upon the Pope’s discussion of ecological debt and his indictment of multinational corporations (MNCs) in Laudato Si’, which resonate with the so-called pollution haven hypothesis (PHH) which states that pollutionintensive industries in developed countries relocate their “dirty” industries to developing countries with relatively lax environmental regulations. In a similar vein, we propose that a rise in total greenhouse gases is associated with the resource extraction and commodity export-based activities of MNCs in developing countries where such activities and their resultant pollution are subject to less stringent regulations due to imperatives for economic growth. This creates an ecological debt when commodity exports from developing countries to more developed ones come at the cost of the environment in the former. Our article thus connects Laudato Si’ with PHH, enabling us to empirically examine the Pope’s statement that the “export of raw materials to satisfy markets in the industrialized North has caused harm locally” (Francis, 2015: 51).